Retailers can at least partially overcome a difficult economy and an anxiety-ridden consumer if they offer customers the promise of a good time, a good look and a good value.
That was the message delivered by a panel of retailers, convening in the midst of a severe credit crunch, at last week’s RBC Capital Markets’ Consumer Conference in New York. While not underestimating the severity of the current financial crisis, executives from Urban Outfitters Inc., American Eagle Outfitters Inc., Tween Brands Inc. and Casual Male Retail Group Inc. offered survival strategies for a challenging holiday season as well as updates on the current condition of their firms.
“Now is not the time to be chicken,” said Urban Outfitters chief financial officer John Kyees. “It’s the time to be aggressive. You have to show unique product. If you don’t show it, the customer is not going to have any reason to buy.”
That’s easier for Kyees to say than it is for others. In its second quarter, the company — which includes the namesake brand as well as Anthropologie and Free People — had a 78.8 percent jump in profits, while same-store sales rose 7 percent, 10 percent and 19 percent at Anthropologie, Free People and Urban Outfitters, respectively.
Urban’s success is due to its fashion-forward merchandise, Kyees said, and the “experiential” orientation of its individually designed stores.
Kyees likened the shopping experience to a “mini-vacation” or a “treasure hunt,” and said that when times are tough, consumers “gravitate towards stores with the best shopping experience.”
“Women shop to have fun; it’s not because they need clothing,” he said.
The shopping experience is only one element of Urban’s success, he said. Another is product assortment. Kyees said Urban’s “broad and shallow” inventory is atypical. Most retailers have fewer styles in a wider array of colors.
“I think the model of our business has really paid off in this type of an environment, and I think we have the ability to test fashion on the edges where some people don’t,” he said. “When you’re narrow and deep, you have to make too big a bet on the edge of fashion. When you’re broad and shallow, and you’re buying 5,000 units and not 100,000 units of an item, you can gamble, and if you’re wrong, you mark it down and move on.”
Tween Brands recently took a large gamble of its own. Following a larger-than-expected second-quarter loss and an 8 percent decline in same-store sales, Tween disclosed in August that it would convert 560 of its Limited Too stores to its more moderately oriented Justice nameplate. As the conversion moves forward, traffic has remained slow.
“I think there is a much bigger fear factor than we’re letting on,” said Tween’s chairman and chief executive officer Michael Rayden of the recent economic trials and tribulations. “Traffic would not be down if they weren’t feeling worried about whether they are going to be employed, or whether they are going to pay the bills. I think it’s going to stay that way for a while. You don’t turn around this fear overnight.”
Rayden, like his colleagues on the panel, said consumers have been feeling the pinch for some time, lowering women’s and teen apparel sales.
“The [teen] pack is not growing,” he said, adding the financial crisis has taken a toll on consumers of every income bracket and, in turn, retailers of every kind.
American Eagle cfo Joan Hilson told the audience her company’s women’s business has declined, while men’s has remained strong “in the past two or three quarters.”
To strengthen sales, Hilson said the teen retailer would bring “value” in key items to offset the “tougher environment.” Already, Hilson said the retailer “had to play the price card” in August, when it rolled out promotions in order to move its assortment.
Hilson said that while there is a “price sensitivity,” retailers “have to differentiate in assortment to win.”
Like nearly all retailers, American Eagle is tightening inventories and assessing discretionary costs.
Surveying the prospects for holiday, Kyees was the most optimistic member of the panel, saying his company’s third-quarter momentum would carry into the fourth quarter, while Hilson, Rayden and Casual Male ceo David Levin were more cautious, pointing to the trend towards later shopping by consumers and adding that even though Christmas will be difficult, it will still happen.
Levin argued that retailers, analysts and the media tend to make too much of early shopping trends. “Everybody’s going to focus on [Black] Friday, talk about the numbers on Friday, how much traffic was out there. There’ll be huge traffic with the early bird specials. Saturday the malls will be half empty again.
“The next two weeks, everybody’s going to moan and groan, ‘Where are the customers?’ and there will be this huge surge the last four or five days. It’s been happening every year. I don’t know why we think the first two weeks in December there’s this Christmas rush,” Levin said, exasperated. “They are normal weeks. If you start to realize it, you can start to plan your business and not panic also.”
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